How Bad is the DC Real Estate Market
Hi, 2007 called, they want their real estate market back.
People! What is happening? We’re in the middle of Fall 2022’s real estate market. There’s been an onslaught of daily real estate agent emails announcing price reductions. I received 47 emails one morning – announcing price drops. I deleted them. Sorry other real estate agents, but nobody cares. Especially not the buyers right now.
What are the buyers doing? And when and how will this end?
Despite the negative news and high interest rates, I might buy another investment property. Why now you say? Why not! There’s almost no competition, no escalations, I can do a home inspection and maybe even get a credit from the seller. But Melissa, what about those interest rates?
Buying a house just because the interest rate is low is like getting married because the Four Seasons was offering their wedding venue for half price. It’s really a stupid reason.
If you don’t like my logic, then how about a man with a couple pennies in his pocket, Warren Buffet. Be greedy when others are fearful and fearful when others are greedy.
Let’s talk local. Showings are down 25% this year over last year. The economist for the MLS, that’s the Multiple Listing Service in our region, said “during the last week of September, more than 60% of the sellers in DC dropped their asking price.” Duh. She went on to say to expect price growth to be “flat the last few months of the year, with the biggest risk of actual price declines in places where prices ran up more quickly than the metro average, including Prince George’s County (+29% over the past 3 years), Loudoun County (+28%), and Frederick County (+38%).”
We’re going to talk more about things idiots say, but just to show that I’m not one of those idiots, I present to you, my comments in a Facebook group where I used to hang my license. There were days I was sure this group was a practical joke with stupid things people said. But after someone in leadership made the uneducated proclamation about this “not being a bubble,” here was my response.
February 23, 2021: I disagree about the bubble. I think some markets absolutely have a bubble. When you have a house in suburban Maryland in an area with sub par schools that had a house a year ago that didn’t sell for $400,000, now getting 50 offers and going over $500,000 – that is a bubble. There can’t be such a huge shift in demand like this that’s sustainable.
When other talking heads at the company wanted to chat about stats and money supply, clearly not realizing how low rates can lead to inflation which leads to skyrocketing prices and a declining stock market, I said the following.
March 31, 2021: The massive backlash right now in people leaving the cities and urban areas to drive prices up in areas where no one would touch a year ago – that is a problem. No stat would ever tell that story.
So, Prince George’s? Loudoun? Frederick? Touche.
Buyer & Seller Psychology
I’ve been negotiating with a seller on behalf of my buyer clients for over a month on his overpriced house. My clients offered 5% below list price after a week on the market. That was a gift, because he’s overpriced by at least 10% according to the comps. He said no. After a bit of back and forth, my clients withdrew their offer. He should have taken it. Also, he’s a builder, so he should know better.
Thirty days after the property was listed, he finally reduced his price, a mere 2% off the list price. WHOA! Call the bargain hunters, this is a steal! Okay, no, it’s not. Mortgage rates are up. My clients decided to try again, offering 7.5% less than the original list price for their second offer. He was mad they are going lower. Their reason was, and pay attention: “Rates are up 1 full point since the first offer, and, another 30 days have passed with no other offers. The house is less valuable to us now than it was a month ago.”
Bravo to my buyer clients. Nailed it.
This is the perfect example of buyer and seller psychology.
The buyers were willing to pay a slight premium to get it under contract early in its listing life to beat out other potential buyers.
The seller thought he could still get a premium for his home. But that ship sailed. Six months ago, he would have gotten his price. A month ago, he could have gotten 95% of his price. Those were different markets with interest rates in the 3’s to 5’s. This house is going to cost the buyers more if they ratify a contract now. So from their standpoint, the price they are willing to pay went down.
Speaking of interest rates going up and prices going down…
Stop Listening to Stupid People
There are many real estate agents who said prices wouldn’t go down if rates went up. You know who you are – some of you have posts on social media that you haven’t taken down yet. I made fun of you then and I will make fun of you now. Those nonsense little graphs showing rates rising from 2.75% to 4% and prices falling some arbitrary amount that you picked, the monthly payment would still be higher. This infuriates me because this is exactly what idiots were saying in 2007 and exactly what they are saying now. Most of these people don’t have the years in the industry to know what they are talking about.
Some are trying to revise the narrative in the present. I was in a meeting with a discussion about the current market in DC and someone said appraisers must be informed that prices “MUST” go up. What world are you living in, lady? You can’t control an appraiser and prices don’t MUST do anything. We have a market, and the market is efficient. You can’t just manipulate it. If it has become more expensive to buy a home because of interest rates, then something has to provide the offset. Which means prices go down.
Let’s quantify this with some real numbers. When rates were 3%, a $750,000 home would have a monthly payment of $3162. Now with rates at 6%, if you want that same $3162 payment you can only spend $525,000. I’m sure you can see how this much of a price drop is unrealistic for most sellers.
Will every negotiation result in an impasse? Will prices drop by the hundreds of thousands? What’s going to happen?
The same thing that always happens. We don’t need Tawny Kitaen rolling around on the hood of a car singing Here I Go Again. Rest in Peace Tawny.
But, here we go again. Remember when Covid first hit, people all took a break and the housing market pretty much halted? Then everyone got used to the “new normal” and started to get back out there. Life kept happening, people realized that they wanted more space, home offices, yards and here we go again. The market came back.
Right now, the media is giving us gloom and doom headlines. People instantly respond to media whether it’s right or wrong. So, right now, the real estate market is hanging out to dry.
But this too shall pass. People are going to need to buy, and people are going to need to sell. A few bad days of headlines and people think it will last forever. They cancel their purchase contracts and figure out how to stay where they are. Until life happens. Another baby is cooking. A job transfer is too juicy to pass up. Grandparents want to be closer to grandbabies.
If you’re a seller, hang in there. Once everyone adjusts to this new normal, people will return to the market.
If you’re a buyer, I contend that now is the time to buy – when no one else is. You can negotiate closing costs, interest rate buydowns, repairs, actually do a home inspection, have an appraisal contingency, longer time to close, shoot – just time to think if you even like the house. Lenders are getting crafty with products to help you buy. You can do an adjustable rate mortgage then refinance into a conventional when rates go down. But now is an awesome time to buy.
The demand we saw from people buying houses in the past several years was entirely interest-rate fueled demand.
The demand we will see going forward will be solely based on family decisions, job location and the “true” demand that results in home sale or purchase decisions.
Welcome to a REAL Real Estate Market. Welcome to 2022. I’m so glad we are here.